Pension experts are urging Chancellor John Healey to rule out any changes to tax-free pension lump sums ahead of October's Budget, warning that continued speculation could trigger another rush by savers to withdraw their money.
The warning comes just days after official HMRC figures showed pension tax charges surged 22%, adding to concerns that increasingly complex pension tax rules are undermining confidence in retirement saving.
Impact of Uncertainty
Last year, then-Chancellor Rachel Reeves refused to rule out changes to pension tax relief before her Budget, fuelling months of speculation. Although no changes were announced, the uncertainty alone prompted savers to withdraw £18.3bn in tax-free lump sums during 2024/25, compared with an average of £7.9bn a year between 2018 and 2023, according to Financial Conduct Authority data analysed by AJ Bell.
Industry experts say the Government now has an opportunity to restore confidence by confirming the long-standing right to withdraw up to 25% of a pension tax free - up to a maximum of £268,275 - will remain untouched.
Expert Calls for Stability
Tom Selby, public policy director at AJ Bell, said a commitment to pension stability would cost the Treasury nothing. He said: "One policy commitment that would reassure voters without costing a penny in new Treasury spending is a long-lasting commitment to pension tax stability. A pledge not to meddle with people's savings would show this government supports savers and retirees, and avoid a repeat of the last two fiscal events where billions exited long-term investments, damaging people's retirement prospects in the process."
Lisa Picardo, chief business officer at PensionBee, told the Independent: "We've previously warned that the pension tax-free lump sum is a cornerstone of retirement planning, and previous budgets have shown exactly what happens when a chancellor leaves that in doubt for months on end: some savers panic, withdraw pre-emptively, often to their own detriment, and later regret this when it cannot be reversed. With the budget date now confirmed, John Healey has an early opportunity to break that cycle of speculation by ruling out further tinkering with pension tax relief well before 28 October, rather than let uncertainty do the damage a policy never did."
Under current rules, most pension savers can take up to a quarter of their pension tax free, subject to existing limits. However, once the money has been withdrawn, it cannot simply be put back. Taking a lump sum also reduces the amount left invested, potentially leaving savers with a smaller retirement income.
Experts say the Government can avoid another damaging bout of speculation by giving pension savers certainty well before the Budget on October 28, rather than allowing rumours to drive irreversible financial decisions.
